End Debt with Oprahs Debt Diet

Tips for Winning Your Debt Diet

Oprah has been doing a weekly series called “The Debt Diet.” I’ve been on this diet for years and slowly but surely I am finally beginning to see progress in my quest to lose the debt and eliminate interest payments from my life. Apparently I’ve been doing something right. On the show last week, financial experts suggested paying off charge cards with smaller balances and then shifting your focus to higher interest credit cards. I don’t remember if I’d read it somewhere or if it was just common sense but this is a plan that I had devised for myself. I sit down quarterly and chart my balances and interest rates. I then set a target date to pay off my bills and adjust the minimum payments to meet that target date. The easiest way is to eliminate the smaller bills and then the extra income is available to tackle the larger balances. Companies that are charging ridiculous interest rates need to kicked to the curbed. Although it was a big sacrifice I have used my tax refund to pay off credit cards in the past - sometimes several smaller accounts and other times one high interest account. The only problem is that by the following year I charged them up again. I won’t be making that mistake again.

Although the ideal situation is to be able to pay off your charges by the end of the month that is not always feasible for most people making just enough money to pay rent and bills. Even if it isn’t possible to pay off charges it does help to try to pay more than the minimum amount due each month. The Office of the Comptroller of Currency (OCC) has asked credit card companies to increase the minimum amount due from 2% to 4% which will give consumers the chance to play catch up with their outstanding debts. Naturally this increase can move people who are already on the verge of financial collapse even closer to the edge but it also offers the opportunity to slowly dig out of the financial hole they managed to fall into.

Think that it will help to close out accounts that have gotten out of hand? Not necessarily - financial experts say that closing accounts right away will negatively impact your credit scores. Who knew? In college when they were handing out credit cards they made it seem so easy but the reality is that they should have insisted that students take an economics course before accepting their offers. Student loans, now that is a whole other racket in itself.

Another trick for staying on top of your finances is to save all receipts and enter them into Quicken regularly…it is like balancing your check book on your computer. The days of being able to spend money until your account is empty are gone. There are too many companies out there trying to get every penny you’ve got. From banks that are charging unnecessary hidden fees to credit card companies that find ways to triple cross you with late fees, over the limit fees and higher interest rates imposed in a single billing cycle.

The elders were right to keep their money hidden away and pay cash for everything. If you can’t pay cash for it then you probably can’t afford it so stop carrying your credit card around unless you know that you will be using it for a specific purpose. Keep your cards hidden in a safe location at home for emergencies only. That means not using your credit card for disposable items like groceries, eating out, gasoline and entertainment. The general rule of thumb is, if you can’t look at and touch the item while you are paying it off then you shouldn’t have charged it. The reasoning behind this is that you actually wind up paying 2 and 3 times the original amount in interest payments. Another general rule to keep in mind is if your credit card debt exceeds 10% of your annual income, then you are in too much debt.

Believe it or not some banks are actually working with customers to help protect their assets. Although the catalyst for services like spending limit alerts offered by Chase and Citibank was primarily a tool to deal with identity theft and fraud, it serves the consumer two-fold because it can help you track your spending in real time. Take full advantage of these services if your banking institution offers them.

Finally, check your credit report regularly. You’d be surprised how often wrong, outdated or even fraudulent information shows up on your credit report. The time to find out is not when you are applying for your dream home. Consumers are legally entitled to a free credit report every year from the top 3 credit reporting agencies. The credit card companies and banks are not the ones in control of your money - you are.

Oprah’s Steps for Eliminating Debt:

1. Calculate your debt
2. Track Your Spending
3. Learn the Credit Card Game and Get Your Credit Score
4. Stop Spending

This entry was posted on Saturday, April 29th, 2006 and is filed under Debt Consolidation, Debt Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.